MARKET WRAPS
Stocks:
European markets rose as oil prices increase and as investors
digest the outcome of the German elections.
The DAX, Germany's benchmark stock index, rose 1% in the best
intraday performance among Western European indexes. Germans voted
for a new chancellor over the weekend. The initial results showed a
tight race that will likely mean lengthy coalition talks and no
major changes to policy, according to Peter Schaffrik, a global
macro strategist at RBC Capital Markets.
"For markets this means continuity. At the end of the day, it
will remain a centrist government in all cases," Mr. Schaffrik
said. "Germany's fiscal stance will remain within the boundaries of
what the market will find easily acceptable."
German policies will continue to evolve but not shift
dramatically, Berenberg chief economist Holger Schmieding said.
In the first federal election in 16 years without Merkel,
Germans don't seem to yearn for fundamental change, he said.
Both a traffic light and a Jamaica coalition--the two most
likely options--would continue the German tilt of the last eight
years toward a more relaxed, centre-left and greener policy stance,
characterized by more spending on digital, infrastructure, climate
protection and health, and a new attempt to complete the European
banking union without softening Germany's position very much.
"Differences in the overall fiscal stance between traffic light
and Jamaica wouldn't be big enough to change the outlook for German
or Eurozone aggregate demand," Schmieding said.
The pan-continental Stoxx Europe 600 advanced 0.7%, with stocks
that benefit from the loosening of pandemic restrictions leading
the index higher.
Shares on the move:
Office-landlord and WeWork competitor IWG rose nearly 7%. Travel
stocks rallied. International Consolidated Airlines Group rose 3.7%
and Aeroports de Paris climbed 4.8%. Rolls Royce jumped 7%, rising
for a second trading session after the jet-engine maker won a deal
to supply the U.S. Air Force fleet of B-52 bombers.
Data in focus:
Financial markets are assuming that German coalition
negotiations will drag on for a long time and this might spark some
volatility, said Lale Akoner, senior market strategist at BNY
Mellon Investment Management.
"We know markets do not like uncertainty and should therefore
expect higher volatility," she said. Coalition outcomes do have
implications for bonds markets, she added. A "traffic light"
coalition--one with SPD, FDP and Greens--"may result in a material
change in political regime and higher fiscal spending--meaningfully
deviating from [Chancellor Angela] Merkel's frugal era."
U.S. Markets:
Stock futures rose, and oil hit its highest level in nearly
three years, as fears about China Evergrande Group 's debt problems
waned and investors bet on further economic reopening from the
pandemic.
Stocks swung last week as fears about Evergrande's debt problems
weighed on markets. Despite the Chinese property developer missing
a bond coupon payment, the S&P 500 still finished the week up
0.5%.
Federal Reserve Chairman Jerome Powell helped boost confidence
when he said the U.S. economy has recovered sufficiently for the
central bank to potentially announce the start of bond-purchase
tapering at its next meeting.
"People have had time to think over the weekend and have decided
that this is another occasion to buy the dip," said Sebastien Galy,
a macro strategist at Nordea Asset Management, referring to the
practice of buying after stocks fall. "The high levels of liquidity
in the market changes our view of the world and how fast we fade
the fear."
At 8:30 a.m. ET Monday, fresh data on new U.S. orders for
durable goods in August is set to be released. Economists are
expecting an increase, as business investment and consumer spending
was strong.
There are a number of Federal Reserve officials due to speak
this week, with Monday including speeches from Chicago Fed
President Charles Evans, New York Fed President John Williams and
Fed Gov. Lael Brainard.
Forex:
Germany's federal elections, where the center-left SPD party won
a narrow victory and a government is unlikely to be formed for
weeks, likely won't have any immediate impact on the euro,
Commerzbank said.
The issues affecting the euro "will only begin to emerge
slowly," said currency analyst Ulrich Leuchtmann. A government
favoring greater EU fiscal consolidation would be euro-positive,
and a SPD-Green-Liberal coalition could take this route, depending
on concessions made to the Liberals.
A tougher stance towards China might strain Europe-China
relations, which is likelier if the Greens and Liberals have a big
influence. "The example of the U.S.-Chinese trade war suggests that
this might lead to appreciation potential for the euro," Leuchtmann
said.
The U.K.'s supply constraints could send the pound lower even
though the market has recently priced in more interest rate rises
by the Bank of England for next year, MUFG Bank said.
The seriousness of supply side bottlenecks was underlined by the
U.K. government's decision to offer temporary visas to fuel tanker
and food truck drivers, and to poultry workers, MUFG currency
analyst Lee Hardman said.
"The latest developments are creating a more negative
combination of weaker growth and higher inflation in the U.K. which
we believe is a bad mix for pound performance." GBP/USD could
weaken, especially if it falls below the 1.3600 support level, he
said.
Bitcoin recovered after falling in reaction to Friday's news
that China will ban all cryptocurrency transactions and mining.
Bitcoin rose 5.6% to $43,858, having fallen as low as $41,120 on
Friday, according to CoinDesk.
"The impact of the latest Chinese news on Bitcoin's price was
significant but not dramatic as the $40K support held well during
the kneejerk drop and during the weekend," Swissquote Bank analyst
Ipek Ozkardeskaya said.
"But Bitcoin is still in the bearish consolidation zone and
should make a move above the $44/45K mark to step back to the
positive trend, otherwise we may see the price of a coin
fluctuating between $40K and $45K range without too much excitement
for traders."
Bonds:
The yield on the 10-year benchmark U.S. Treasury note ticked
down to 1.447% Monday, from 1.459% Friday, capping a four-day rise
that drove the biggest weekly increase since March.
Investors are likely to continue to sell U.S. Treasurys and U.K.
government bonds, pushing their yields higher, as they price in the
possibility of higher interest rates, said Mizuho.
"The move higher in yields should continue in U.S. Treasurys and
more forcefully in GBP rates," analysts at the Japanese bank
said.
The Bank of England's surprise comments last week that the
latest developments had strengthened the case for modest tightening
makes foreign selling of gilts more likely, they said.
Corporate bond purchases by the European Central Bank are likely
to partially offset supply pressure this month, said UniCredit.
In particular, ECB's bond-buying activity should support euro
investment-grade nonfinancial senior debt, alleviating the
technical pressure from the strong new-bond supply this month,
analysts at the bank said.
Sales of new debt by companies tracked by the iBoxx nonfinancial
corporate bond index reached EUR27 billion so far this month, they
added.
A rebound in risk-on sentiment Monday may lead to tighter credit
spreads, unwinding some of last week's spread widening in hybrid
debt and high-yield corporate bonds, said UniCredit.
"Despite ongoing concerns about developments in the Chinese real
estate sector, appetite for risk looks to be up this morning,"
analysts at the bank said, adding that market sentiment is in the
driver's seat this morning.
This may lead to at least a partial reversal of last week's
spread widening in hybrids of about 6 basis points and of 4 bps for
high-yield debt, they said.
Commodities:
Oil prices rose thanks in part to broader concerns over the
tightness in energy markets, with oil demand expected to get an
additional boost from gas to oil switching over the course of this
winter, according to DNB Markets' Helge Andre Martinsen.
Those gains also come after Goldman Sachs on Sunday increased
its year-end Brent forecast by $10 to $90 a barrel.
"The current global oil supply-demand deficit is larger than we
expected, with the recovery in global demand from the Delta impact
even faster than our above consensus forecast and with global
supply remaining short of our below consensus forecasts," Goldman
Sachs's Damien Courvalin said.
Gold prices traded sideways as investors shun the metal in favor
of other assets. Investors continued to wind down their gold
positions last week as the precious metal's lackluster price
performance made other assets more appealing, Commerzbank said.
Gold exchange-traded funds tracked by FactSet saw a net outflow
of $464 million last week. Speculative investors also slashed their
exposure to gold futures, according to CFTC data. Money managers
cut their net long positions in gold futures by 24,000 lots in the
week to 21 September. That is equivalent to selling 76 metric tons
of gold in one week, noted Commerzbank.
Copper prices edged lower as the dollar rises and investors
weigh risks from central bank tightening and the Evergrande saga.
Three-month copper on the LME edged down 0.4% to $9,317 a metric
ton.
Other base metals also begin the week on the ropes. Aluminum
fell 1.2% to $9,316.50 a ton while nickel fell 1.6% to $18,900 a
ton.
"Deleveraging and regulatory pressures will continue to see
tailwinds morph to headwinds in the coming months," TD Securities
said in a note.
The Fed is likely to begin tapering next month, "[suggesting]
that macro forces will increasingly point to the downside as the
path of least resistance in the coming months," the bank said.
EMEA HEADLINES
Google Pushes to Overturn EU's $5 Billion Antitrust Decision on
Android
BRUSSELS-Alphabet Inc.'s Google begun its appeal Monday to
overturn a $5 billion antitrust fine imposed by the European Union,
contending that its Android operating system for mobile devices has
boosted competition rather than foreclosing it.
The tech giant presented oral arguments in Luxembourg before the
EU's second-highest court, in its appeal to overturn the 2018
decision from the bloc's antitrust enforcer. In that case, EU
authorities found Google had illegally abused the market power of
Android to push companies that manufacture and distribute Android
phones into agreements aimed at entrenching and expanding the
dominance of the Google search engine on mobile devices.
Center-Left Wins Narrow Victory in German Elections
BERLIN-Germany faces weeks and perhaps months of uncertainty as
Sunday's narrow victory for the center-left in national elections
left open the shape and agenda of its next government and offered
little clarity about who would succeed Chancellor Angela
Merkel.
At least initially, the world's fourth-largest economy and the
European Union's biggest member could find itself without strong
leadership, then with a weakened government in the following four
years.
How France Overcame Covid-19 Vaccine Hesitancy
PARIS-When France started vaccinating its population at the
start of the year, it had one of the highest rates of hesitancy in
the world. Today, it has one of the highest vaccination rates among
larger Western countries, after a mix of enticements and government
pressure pushed millions of French to receive the shot this
summer.
The success of the French campaign is such that the government
has floated the idea of loosening in parts of the country some of
the restrictions it put on this summer. Notably, that includes the
requirement to show a health pass with the holder's vaccine status
or test results to eat out, go to nightclubs or attend sports
events. On Sept. 22, France announced plans to end the requirements
for children to wear masks in primary schools in some parts of the
country.
Prudential to Raise $2.4 Billion From Hong Kong Offer
Prudential PLC will raise $2.4 billion by issuing new shares,
proceeds of which will be used by the insurer to redeem high-coupon
debt due in six months and invest for growth.
The U.K. insurer will sell 130.8 million new shares in the Hong
Kong offer at a maximum price of 143.8 Hong Kong dollars per share
(US$18.46), Prudential said late Sunday.
At Deutsche Bank's DWS, Issues With Data Were at Heart of
Sustainable-Investing Problems
In its latest annual report, Deutsche Bank AG's DWS Group said,
"ESG data is the cornerstone of our ESG analysis," referring to the
asset-management firm's push to be a leader in one of the hottest
segments of Wall Street: using environmental, social and governance
criteria to make investments.
Inside DWS, executives questioned the data, and fund managers
ignored calls to use the information to judge which investments to
make, according to previously undisclosed internal emails and the
company's former sustainability chief, Desiree Fixler.
Tech Boom Floods Israel's Silicon Valley With Cash, Exposing
Divisions
TEL AVIV-Nir Zohar started at Wix.com in 2007 as office gopher.
Today, he is chief operating officer at the Tel Aviv-based website
designer, with a shareholding worth at least $56 million at current
valuations.
The 43-year-old, who routinely wears shorts and a T-shirt to
work, is one of a generation of Israelis who have become
millionaires through the country's red-hot technology industry, and
who are transforming Tel Aviv.
U.S., Russia Should Deepen Military Communications, Mark Milley
Says
WASHINGTON-Army Gen. Mark Milley, chairman of the Joint Chiefs
of Staff, said the U.S. and Russian militaries need to expand and
deepen their communication and stressed that dialogue between the
two adversaries could help de-escalate a future crisis.
Gen. Milley, fresh from a meeting in Helsinki this week with his
Russian counterpart, said that adding to existing communication
channels already in effect would help each side understand the
other's plans and moves.
Covid-19 Vaccine Gap Between Rich and Poor Nations Keeps
Widening
The central African nation of Burundi has yet to administer a
single Covid-19 vaccine. In Kinshasa, a megacity of 12 million in
the Democratic Republic of Congo, healthcare workers have given out
fewer than 40,000 Covid-19 shots. In Uganda, people line up for
hours outside hospitals only to be turned away amid dwindling
vaccine supplies.
Nearly 10 months after the first Covid-19 vaccine became
available to the public, the divide between nations that have shots
and those that don't is starker than ever. The U.S. and other rich
countries such as Israel and the U.K. are doling out third shots,
while in low-income countries-the vast majority of which are in
Africa-just 2.2% of people have received even a single dose.
GLOBAL NEWS
Commodity Boom Is Too Much of a Good Thing for Many Traders
It has been a banner year for fossil-fuel, metals and
agricultural markets. For many commodity traders, the boom in
prices has had an unexpected effect: a credit crunch that is
reshaping the industry in favor of the largest players.
Higher prices are requiring traders to borrow more money to
finance the same volume of oil, copper or coffee. In some
instances, extreme or unusual weather is causing gyrations in
commodity prices, prompting traders to amass cash in a pinch.
After Early Investors Flee SPAC Deals, Day Traders Rush In
Day traders are targeting some companies that recently closed
SPAC mergers, reinvigorating some of the meme-stock excitement that
helped make such deals popular early in the year.
The latest special-purpose-acquisition-company excitement
focuses on firms like cybersecurity firm IronNet Inc. that suffered
significant investor withdrawals ahead of going public by closing
SPAC mergers. High withdrawals leave the companies going public
with less cash to put into their businesses and can make it harder
for them to meet the growth projections they made as part of the
deals with so-called blank-check companies.
Economy Week Ahead: Consumer Spending, Inflation,
Manufacturing
The Commerce Department's monthly report on U.S. consumer
spending highlights this week's economic data.
Cargo Piles Up as California Ports Jostle Over How to Resolve
Delays
Nike Inc. doesn't have enough sneakers to sell for the holidays.
Costco Wholesale Corp. is reimposing limits on paper towel
purchases. Prices for artificial Christmas trees have jumped 25%
this season.
Despite mounting shipping delays and cargo backlogs, the busiest
U.S. port complex shuts its gates for hours on most days and
remains closed on Sundays. Meanwhile, major ports in Asia and
Europe have operated round-the-clock for years.
In a Troubled U.S.-China Relationship, Moments of Pragmatism
Emerge
Behind-the-scenes dealings that freed a Chinese executive from
U.S. prosecution removed a stumbling block between the nations and
demonstrated a little-noticed pragmatic dimension to the
relationship.
The U.S. and China are at loggerheads on numerous fronts, from
technology and human rights to Beijing's territorial claims; the
United Nations secretary-general this month termed the nations'
relationship as "completely dysfunctional."
Debt-Limit Standoff Could Force Fed to Revisit Emergency
Playbook
A crisis-management playbook Federal Reserve officials created
years ago could guide their response this fall if the federal
government can't pay all its bills because of a political standoff
over raising the federal debt limit.
The options include the Fed buying Treasury securities in
default on the open market and selling Treasurys owned by the Fed
to counteract potentially severe strains in financial markets,
according to the transcript of an October 2013 conference call.
Bitcoin Miners Eye Nuclear Power as Environmental Criticism
Mounts
Bitcoin miners, under fire for their sizable environmental
footprint, are forging partnerships with owners of struggling
nuclear-power plants with electricity to spare.
The matchups have the potential to solve key issues facing each
industry, executives and analysts say: Electricity-hungry bitcoin
miners want stable and carbon-free power, while nuclear plants
facing competition from cheaper power sources need new
customers.
U.N. Members Seek New Cyber Discussions Amid Rising Ransomware
Attacks
The future of United Nations-led efforts to create rules around
how nations should behave in cyberspace is unclear, researchers and
experts say, even as countries respond to a growing number of
ransomware attacks.
U.N. member states in a cyber discussion group struck an
agreement in March on a set of so-called norms, or nonbinding
principles that include a prohibition on attacking critical
infrastructure in other countries. Russia and France, however,
proposed two competing groups to replace that forum, which was
scheduled to end this year.
Center-Left Wins Narrow Victory in German Elections
BERLIN-Germany faces weeks and perhaps months of uncertainty as
Sunday's narrow victory for the center-left in national elections
left open the shape and agenda of its next government and offered
little clarity about who would succeed Chancellor Angela
Merkel.
At least initially, the world's fourth-largest economy and the
European Union's biggest member could find itself without strong
leadership, then with a weakened government in the following four
years.
Congress Heads Into Tumultuous Week Pressured by Converging
Deadlines
WASHINGTON-A slew of high-stakes deadlines will collide on
Capitol Hill this week, setting up potentially chaotic negotiations
against the backdrop of expiring government funding and the threat
of a possible U.S. default.
Even by the standards of a Capitol used to operating under
pressure, this week's maelstrom of legislative and fiscal
crosscurrents is setting the stage for an extraordinary sprint.
Democratic leaders are trying to shepherd two complicated
legislative packages: a roughly $1 trillion bipartisan
infrastructure bill and a sprawling healthcare, education and
climate package whose proposed $3.5 trillion price tag and contents
are still under intense debate within the party.
WHO Seeks to Revive Stalled Inquiry Into Origins of Covid-19
With New Team
The World Health Organization is reviving its stalled
investigation into the origins of the Covid-19 virus as agency
officials warn that time is running out to determine how the
pandemic that has killed more than 4.7 million people world-wide
began.
A new team of about 20 scientists-including specialists in
laboratory safety and biosecurity and geneticists and
animal-disease experts versed in how viruses spill over from
nature-is being assembled with a mandate to hunt for new evidence
in China and elsewhere.
Covid-19 Panel of Scientists Investigating Origins of Virus Is
Disbanded
Columbia University professor Jeffrey Sachs said he has
disbanded a task force of scientists probing the origins of
Covid-19 in favor of wider biosafety research.
Dr. Sachs, chairman of a Covid-19 commission affiliated with the
Lancet scientific journals, said he closed the task force because
he was concerned about its links to EcoHealth Alliance. The New
York-based nonprofit has been under scrutiny from some scientists,
members of Congress and other officials since 2020 for using U.S.
funds for studies on bat coronaviruses with the Wuhan Institute of
Virology, a research facility in the Chinese city where the first
Covid-19 outbreak occurred.
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(END) Dow Jones Newswires
September 27, 2021 06:37 ET (10:37 GMT)
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